India 10-year benchmark govt bond yield ends slightly higher at 6.7024%; previous close 6.6881%

India 10-year benchmark govt bond yield ends slightly higher at 6.7024%; previous close 6.6881%

The Indian government bond market witnessed a consolidation in yields on Wednesday, with the benchmark 10-year yield ending at 6.7024%, slightly higher than the previous close of 6.6881% [1]. The yield had earlier touched a high of 6.7530%, its highest since January 20 [1].

The cautious sentiment in the market was primarily driven by heavy debt supply from Indian states. States raised a massive 505 billion rupees ($5.80 billion) through a sale of bonds on Tuesday, with cutoff yields higher than anticipated, indicating weak demand [1]. Despite the central government's borrowing program for the financial year-end concluding, states are expected to raise around 1.35 trillion rupees in the last three weeks of March [1]. A majority of the supply from states is expected to be dominated by longer tenure bonds.

Trading interest in longer-duration government bonds has diminished due to uncertainty around bond purchases by the Reserve Bank of India (RBI) in March. After infusing around 870 billion rupees into the banking system through a three-year dollar/rupee swap, the RBI will auction Treasury bills worth 330 billion rupees later in the day [1].

The RBI's decision to deliver its first rate cut in over four years on February 7th, shifting the policy stance to neutral, had initially led to a decline in government bond yields to a three-year low of 6.7% on February 6th [2]. However, the delay in the implementation of liquidity rules that forced the purchase of government bonds and the anticipation of further debt supply from states have led to a consolidation in yields above the 6.75% level.

In contrast, longer-dated U.S. Treasury yields rose on Tuesday and extended their rise during Asian trade, with yields having eased on Tuesday on concerns over U.S. President Donald Trump's tariffs on imports from Mexico and Canada and the doubling of duties on Chinese imports [1].

References:
[1] Economic Times. (2023, March 15). Indian bonds consolidate as 10-year bond yield tops 6.75%. Retrieved March 15, 2023, from https://economictimes.indiatimes.com/markets/bonds/indian-bonds-consolidate-as-10-year-bond-yield-tops-6-75/articleshow/118724719.cms
[2] Trading Economics. (2023). India Government Bond Yield. Retrieved March 15, 2023, from https://tradingeconomics.com/india/government-bond-yield